State Farm decision to stop issuing homeowners insurance in California may drive up premiums
SAN FRANCISCO -- Tuesday marked the first business day since a major California insurance company, State Farm, announced it will no longer issue new homeowners insurance policies anywhere in the state.
The company made the announcement late Friday night and said customers who already have policies won't see those canceled. However, homeowners say the trend is unsettling.
"At some point, what do you do?" said Ruth Bennett, who has lived in Sunol for the past 30 years. "Do you say, I have to move because I can't get insurance? I don't know. That's an interesting thought."
Bennett says up until recently, homeowners insurance wasn't an issue, but now her neighbor's policies are being canceled and she's worried she and her husband could be next.
"We just pay our bill and keep going," she said, crossing her fingers.
State Farm, the largest insurer in the state, announced it will not take any new applications for homeowners insurance due to "rapidly growing catastrophe exposure" as well as inflation, causing a steep increase in home repair costs.
"It's more difficult than it has been in the past, that's for sure," said Mike Morgan, a second-generation insurance broker at Gene Morgan Insurance Agency. Gene was his father and founded the business in Livermore for more than 70 years.
"State Farm leaving is going to cause a definite problem for insurance availability for homes in California," said Morgan.
He added that after the 1991 Oakland Hills fire, it became increasingly difficult and more expensive to get homeowners insurance in the Berkeley and Oakland Hills. In the past five years since the catastrophic wildfires in Santa Rosa in 2017 and other parts of the North Bay in 2018, other areas that don't seem obviously fire prone are experiencing similar insurance issues.
Morgan says it's now harder to get policies in places like Orinda and Lafayette, parts of Walnut Creek, Concord and Martinez, and even areas of Pleasanton and Livermore.
"The potential for significant increases in premium are there. They're real," said Morgan.
In some cases, Morgan has seen annual homeowners insurance rates go up by as much as 400% to 800%, a problem that could get worse as State Farm leaves California because less competition means even higher rates.
"We would have to pay the bill, wouldn't we, because we want to have fire insurance. So we want to make sure our house is covered, so we would have to pay, and it could be something significant for us, definitely," said Bennett.
The California FAIR plan is still an option for fire insurance if homeowners cannot find a policy on the private market. Insurance experts say it's important to note that only covers fire damage, so homeowners still need another policy to cover issues like water damage and theft.
The California Department of Insurance issued the following statement on State Farm's announcement:
While insurance companies prioritize their short-term financial goals, the long-term goal of the Department of Insurance is protecting consumers. The factors driving State Farm's decision are beyond our control, including climate change, reinsurance costs affecting the entire insurance industry, and global inflation. The Department of Insurance is focused on the safety of our homes and communities. We have been here before after major wildfires. What's different is the actions that we are taking with the first-ever insurance discount program for wildfire safety and unprecedented wildfire mitigation investments from the Legislature and Governor.
It's important to note that current customers will not lose their insurance. There are no non-renewals taking place with today's State Farm announcement, and State Farm continues to write new private passenger auto insurance policies.
We urge consumers to stay informed about their insurance options and rights. The Department of Insurance provides consumers with resources and guidance to assist homeowners and businesses in navigating the insurance landscape. For further information, please visit our website at www.insurance.ca.gov or contact our Consumer Hotline at 1-800-927-4357.
